Digital currencies, including stable coins, represent a pivotal component of the financial industry's transformative evolution. Recent legislative developments—such as the U.S. Senate passing the GENIUS Act on June 17 and Hong Kong's Stablecoin Ordinance Draft taking effect August 1—highlight this shift. The Hong Kong SAR government further reinforced its commitment by releasing the Hong Kong Digital Asset Development Policy Declaration 2.0 on June 26, aiming to establish the region as a global hub for digital asset innovation. This article examines stable coins and digital currencies from a banking perspective, analyzing their industry-wide implications and future collaboration potential.
Banking Under Pressure: The Competitive Challenge for Commercial Banks
Commercial banks traditionally function through three core operations:
- Deposits (safeguarding client funds)
- Loans (extending credit)
- Transfers (payment clearing/settlement)
The transfer infrastructure forms the backbone, enabling derivative services like deposits and loans. Modern banks maintain vast payment networks relying on real-time double-entry bookkeeping and interbank ledger reconciliation.
👉 Discover how blockchain revolutionizes payments
Stable coins disrupt this paradigm by introducing peer-to-peer (P2P) online transactions that bypass financial intermediaries—a monetary breakthrough comparable to the advent of gold coins 3,000 years ago. Consider Tether: with under 100 employees, its blockchain platform executes functions equivalent to global banking systems. In stark contrast, JPMorgan Chase employs 300,000+ staff, while ICBC has 420,000.
Digital Currencies: The Protocol for Value Transfer in the Digital Age
Much like HTTP for web pages or TCP/IP for network communication, digital currencies may become the primary protocol for value exchange in digital ecosystems. Imagine email systems:
- Public key = Username
- Private key = Password
- Message content = Transaction amount
This framework enables not only basic transfers but also sophisticated financial products and Real World Asset (RWA) tokenization. Nigeria's attempted cryptocurrency ban failed—33% of its GDP still settles in USDT—demonstrating decentralized technologies' resistance to top-down regulation.
Central Banking Evolution: From Gold Standards to Digital Renaissance
Historical context:
| Institution | Year Established | Primary Function |
|------------|----------------|------------------|
| Amsterdam Exchange Bank | 1609 | Dutch East India Company financing |
| Bank of England | 1694 | Post-Bill of Rights war funding |
| Federal Reserve | 1913 | Modern monetary policy |
Monetary systems evolved from gold standards to today's debt-based fiat regimes. With gold semi-retired and the USD faltering, cryptocurrencies like Bitcoin—scarce, internet-native assets—emerge as digital-age alternatives. Stable coins bridge this transition, enabling digital currencies to mature into reliable stores of value, payment methods, and valuation benchmarks.
China's Dual Pathway: Digital Transformation + RMB Internationalization
Domestic banks enjoy robust payment systems without experiencing currency crises seen elsewhere. Thus, China's stable coin narrative diverges:
- Digital-Intellectualization ("数智化"): Smart contracts elevate financial efficiency
- RMB Globalization: Blockchain-powered P2P payments amplify China's trade/investment influence
👉 Explore RMB's digital future
Chinese banks should:
- Pilot HKD/offshore RMB stable coin issuance/custody
- Expand usage scenarios to boost currency settlement share
- Embed digital wallets in payment systems
- Provide RWA asset servicing
Collaboration with digital asset exchanges and tech firms will be crucial for cross-border stable coin ecosystems.
FAQs: Addressing Key Questions
Q: How do stable coins differ from traditional cryptocurrencies?
A: Unlike volatile assets like Bitcoin, stable coins peg their value to reserves (e.g., fiat currencies, commodities) ensuring price stability.
Q: Why can't governments easily ban stable coins?
A: Decentralized architectures lack single control points. Widespread adoption (like Nigeria's USDT usage) makes prohibition impractical.
Q: How might stable coins impact traditional banks?
A: They threaten banks' payment monopolies but also create partnership opportunities in custody, RWA, and blockchain services.
Q: What's Hong Kong's strategic advantage in stable coins?
A: Its clear regulatory framework and Policy Declaration 2.0 position it as Asia's digital asset gateway, especially for RMB internationalization.
Q: Are stable coins truly "stable"?
A: Reserve transparency and regulatory oversight determine stability. Fully collateralized coins (e.g., USDC) demonstrate stronger price adherence than algorithmic variants.
Q: How can banks prepare for stable coin disruption?
A: Develop blockchain expertise, pilot custody solutions, and strategize partnerships with fintechs and regulators.
The author serves as an advisor to the Greater Bay Area Financiers Association.